Question

QS 11-7 Accounting for small stock dividend LO P2 The stockholders' equity section of Jun Company's balance sheet as of April 1 follows. On April 2. Jun declares and distributes a 20% stock dividend. The stock's per share market value on April 2 is $15 (prior to the dividend). $ Coron stock 35 par value, 415,000 shares authorized, 220,000 shares issued and outstanding Paid-in capital in excess of par value, common stock Retained earnings Totol stockholders' equity 1,100, 530,000 553,000 2,483.000 $ Prepare the stockholders equity section immediately after the stock dividend. Answer is complete but not entirely correct. JUN COMPANY Stockholders' Equity April 2 (after stock dividend) Common stock Paiden capital in excess of par value common $ 1320,000 640 DCO 1960 CCO Total paid in capital Retained earings Total stockholders' equity 633 000 5 2,593 000

Answer 1

Before stock dividend:

Number of shares outstanding = 220,000

Number of shares issued as dividend = 20% * Number of shares outstanding
Number of shares issued as dividend = 20% * 220,000
Number of shares issued as dividend = 44,000

Increase in common stock = Number of shares issued as dividend * Par value per share
Increase in common stock = 44,000 * $5
Increase in common stock = $220,000

Decrease in retained earnings = Number of shares issued as dividend * Market price per share
Decrease in retained earnings = 44,000 * $15
Decrease in retained earnings = $660,000

Increase in paid-in capital in excess of par value, common stock = Decrease in retained earnings - Increase in common stock
Increase in paid-in capital in excess of par value, common stock = $660,000 - $220,000
Increase in paid-in capital in excess of par value, common stock = $440,000

JUN COMPANY Stockholders' Equity April 2 (after stock dividend) Common stock Paid-in capital in excess of par value, common stock Total paid-in capital Retained earnings Total stockholders' equity $ $ 1,320,000 970,000 2,290,000 193,000 2,483,000 $